Iceland stares into Icesave abyss

[Felch]

After reading about the Cod Wars (best part was "Not to be confused with the Cold War."), I'm proud of the plucky Icelandic Navy defying the Royal Navy. Must have been pretty humiliating to be British back then. Heck, it must be pretty humiliating to be British today.

[Dauphin]

After reading about the Cod Wars (best part was "Not to be confused with the Cold War."), I'm proud of the plucky Icelandic Navy defying the Royal Navy. Must have been pretty humiliating to be British back then. Heck, it must be pretty humiliating to be British today.

It was Britain's Vietnam.

[Bugs ****ing Bunny]

You mean the loans from the Netherlands and the UK that were used to reimburse depositors in those countries?

Those are a bit dodgy, aren't they?

As Dauphin pointed out, it looks like there may have been massive frauds committed by the bank directors.

However, even if that hadn't been the case, you're still left with a loan accepted by the Icelandic government which they're now trying to avoid repaying. Bear in mind that Iceland has also had massive loans by Scandinavian nations, the IMF and Russia- would you lend money to a defaulter?

[Bugs ****ing Bunny]

After reading about the Cod Wars (best part was "Not to be confused with the Cold War."), I'm proud of the plucky Icelandic Navy defying the Royal Navy. Must have been pretty humiliating to be British back then. Heck, it must be pretty humiliating to be British today.

It's easy to be philosophical about it now, when Iceland is doing the sovereign nation equivalent of sucking penises for pennies.

[Ecofarm]

I'm buying a ticket to Iceland, ASAP. Just pennies??

[Kitschum]

Iceland is part of some sort of European Economic Zone (No, not the EU). Subsequently Icelandic banks can do business in other memberstates as long as they have a licence from the Icelandic Central Bank. Icesave had such a licence. The central bank guarantees deposits at such licenced banks up to 20K euro (per person (or account?) in case of a collapse of the bank.

In fact, the 20K (minimum) was guaranteed by a fund in turn guaranteed by the rest of the banking system. What happened in Iceland, and which was apparently not foreseen in the EEA regulations, was a collapse of a country's banking system after a run on irresponsible banks. Now, Iceland's position has consistenyl been that the government itself is/was not legally responsible to cover the fund. The UK/NL apparently disagree. Iceland nationalizes Landsbanki and bails out all Icesave depositors in Iceland (up to 20K), ostensibly to retain a domestic banking system at all. The UK/NL argue discrimination.

The UK/NL bail out depositors in their countries including the 20K that fell on the Icelandic fund and make it clear they expect Iceland to pay them back. Meanwhile, Iceland's economy tanks and alst fall they pass a bill that agrees to take on the debt from the UK/NL depositors - basically, they assert their legal position in principle but in order to get IMF aid and fix their credit rating they cave. The bill had a number of caveats, like the payments can't exceed a certain fraction of Iceland's GDP (necessary because the debt is nominated in euros), and I believe it had a couple of years grace before payments would start. Now, the UK/NL finds the caveats unacceptable. This prompts another bill without them that narrowly passes the Icelanic parliament in december.

The exact amount to be paid is subject to uncertainty depending on how much of Landsbanki's assets are recoverable, but has been estimated to average 1-1.5% of GDP for up to a decade, if nothing out of the ordinary happens in that time. The Icelandic public feels they have been tricked by their own corrupt politicians and bankers and by irresponsible mostly foreign investors into a Versailles-like treaty. Expect more domestic turmoil in Iceland...

Soon the Icelandic government collapsed, leading to new elections and the new parliament now wants to cancel the deal.

No, the Icelandic president, responding to a petition signed by 20-30% (you hear different est.s) of the voters refused to sign the new bill and put it up for a referendum, which opinion polls (I heard 70/30) suggest will vote it down. This prompted the new round of negotiations where UK/NL came closer to acceptable terms for Iceland, but apparently not enough and so they broke down.

Iceland, however, wants to play the "let's get out of safeguarding the foreign investors who have built our economy" game. If they do that, they'll avoid the bad austerity measures they'll have to take, but they'll be financial outcasts.

Claiming that the Icesave investors built Iceland's economy is just absurd. Iceland caught up to Scandinavian living standards well before the 80s and any banking deregulations. The only ones who profited are some criminal bankers and their corrupt friends.

Defaulting would be the worst thing for Iceland, and I hope they are smarter than that. But there's nothing wrong with shaming Britain and Netherlands for their aggressive and ethically questionable behavior against a supposed ally.